You have stomach pains, a fever, and you’re nauseous. You call the doctor to schedule an appointment. Your doctor says you need to rush to the emergency room because it sounds like you have appendicitis. You take his advice and quickly hurry off. At check-in, you describe your symptoms and out rolls the gurney. They tell you to lie down and whisk you off to surgery. You look around and loudly proclaim to the ones in scrubs, what’s happening? The surgeon speaks up and says, well it sounds like you have appendicitis, so we are just going to operate. Whoa, you say. You are going to put me under and slice me open with no other tests or exams? The surgeon states, well, you gave us enough information to qualify you for appendicitis. We see no need to waste time with tests to confirm you do, in fact, have appendicitis. We’ll just roll the dice and see what happens.
If this were you, would running a few tests to confirm you indeed have appendicitis make you feel a little better about the surgery? If so, you should have the same frame of mind when it comes to getting a pre-approval rather than a pre-qualification. A pre-qualification is a preliminary estimate of how much you can afford based on a verbal statement of your income, assets, credit standing, and overall debt. It is only an opinionfrom the lender as to how much you can afford based on the information you provided. To put this in the context of the story, a pre-qualification is the slice and dice, no test.
A pre-approval, or the slice and dice withtests, indicates the lender has verified your income, assets, liabilities, credit worthiness and all meet the standards of the lender. Once pre-approved, you are perceived by a seller and their agent as a legitimate, serious buyer with the ability and the means to purchase their home. To the real estate world, you are viewed as a cash buyer. Even with a pre-approval, there are a still a few things that come into play, such as a finalized sales contract, inspections and appraisal before a lender can actually fund your loan. But getting pre-approved should be your first and most critical step in the home buying process.
To simply close this wound we just opened, a pre-approval can diagnose, treat and heal beautifully, while a pre-qualification may just set you up for a ride to the emergency room with nothing to show for it but a nasty scar.
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